What to Consider When Selling Your Firm
Source: FA-IQ, Feb. 28, 2018
BRUCE LOVE: Hi, this is Bruce Love with Financial Advisor IQ. And I'm here with Fielding Miller, who is the founder of CAPTRUST. Fielding, you read various reports and M&A activity is either picking up pace or it's moving this direction or that, more in to RAs or small brokers. I mean, what's your sense of what's going on at the moment out there?
FIELDING MILLER: There is clearly a lot of activity in the M&A space. There's a lot of capital flowing into that. There's clearly a consolidation opportunity in the independent RA space, and a lot of smart money kind of sees that as an opportunity. The average RA owner is, depending on which survey you look at, 60 to 62 years old.
The further they go into their career, and the later they wait, the less valuable their business becomes. Some people are kind of being forced into picking a partner if they're going to monetize their business. But similar to the breakaway broker trend, that's a lot of noise, but you know, statistically not that relevant. I don't think I think the same can be said for the M&A activity in the RA world because, you know, there's -- depending on how you count it -- 15,000 to 20,000 RAs out there.
And you're reading -- let's just say there's 10 aggregators of different sizes, shapes, colors, flavors. If they were each doing five deals a year, do the math. I mean, there's not enough buyers out there -- there aren't enough buyers out there to clear the transactions.
So I think there will be consolidation, but I think most of it will be internal transfers.
BRUCE LOVE: Right.
FIELDING MILLER: Which is not the best thing for the seller to sell, internally. I mean, they're not going to get the same economics and they're going to have to maintain some risk. And frankly, the people that often work for these entrepreneurs don't have the same skill sets to run a business.
And so that's a little -- it remains to be seen whether or not that's going to work. But for the M&A -- the real activity -- to start to get going, we're a long way from that. There's plenty of demographics to suggest that it's coming, but it hasn't started yet.
BRUCE LOVE: A lot of people, once they get a little older and realize that they're not going to be selling the business as it stands, you know, for these big multiples, is simply just trying to find a home for their book, aren't they?
FIELDING MILLER: Right.
BRUCE LOVE: I mean, do you think that you're going to see more people just trying to offload their book in the future too, you know?
FIELDING MILLER: The problem with that is that there's not a lot of young talent coming in the business. I read a survey that said that there were more financial advisors over 70 than under 30. And the reality is, you can be in this business well in your 70s -- wealth management. Institutional size is a little trickier. So I just see a lot of these books kind of fading away.
I do think that -- remember the clients are even older than -- the average client is probably older than the average advisor. And you know, if the average advisor works in to their 70s -- that puts the client in the 80s -- the client's not going to change. So they're going to hold onto those clients for as long as they're willing to work or as long as the client lives.
But what's going to happen is when that client dies, the children are not going to go with the 70-year-old advisors. So they're going to lose the business eventually, and it's going to get redistributed. But I think the issue is there's a dearth of young talent -- you know, the new generation coming up.
It's a great career. It's a great time to be in the business. But there just aren't that many people coming into it. So to your point about what happens to these books, I think the savvy ones would fold in with somebody else. I think a lot though will just kind of ride it into the sunset.
BRUCE LOVE: Fielding, thank you very much.
FIELDING MILLER: OK, thank you.